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Posted: 10:15 a.m. Thursday, Aug. 14, 2014

The Truth About New-Car Incentives That No One Else Is Telling You

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By James Bragg, Contributor

ClarkHoward.com


When sellers address potential buyers in advertising or face-to-face, their objective is to create a “sense of urgency” that will motivate them to buy now. The essential message is that “today’s unique opportunity will be gone tomorrow.”

In most cases that’s not true, but we gullible consumers fall for it, time after time.

Cutting through the auto sales pitch "boomfog"

Nowhere is that pitch more prevalent than in the retail car business. This tired old sales ploy has probably been around since Henry Ford sold his first Model T. I call it “boomfog” —  a word coined by an old friend to describe a statement that sounds like the straight skinny, but isn’t even a distant cousin of the whole truth.

Here’s the “call to action” that new-vehicle shoppers are peppered with year-round: "OUR CARS MAY LAST FOREVER, BUT THESE DEALS WON’T. AND WHEN THEY’RE GONE, THEY’RE GONE!"

It passes the automakers’ legal sniff test, but almost always ends up as bona fide “boomfog.”

Automakers and dealers are habitually focused on their monthly sales totals. As a result, the factory incentive programs expire at or near a month’s end to create that “sense of urgency” that gets you off your couch and into their stores. They want you to think those are “drop dead” dates, when the truth is that similar offers (sometimes better ones) almost always start a few days later, with new end dates. In my view, that practice lies somewhere between misleading and you-know-what.

Check out these recent illustrations of how dealer incentives really work today

Basic National Incentive Offers
Source: Biweekly CarDeals Incentive Report, published by The Center For the Study of Services in Washington, D.C. (Dollar ranges indicate that offers may vary by region.)

2014 Toyota Prius Liftback (the best-selling Prius, accounting for about 60% of unit sales)

  • January: $500 rebate or 0% to 2.9% financing up to 72 months. End date: 2/03/14
  • February: $750 rebate or 0% to 2.9% financing up to 72 months. End date: 3/03/14
  • March: $750 rebate or 0% to 2.9% financing up to 72 months. End date: 3/31/14
  • April: $1,000 rebate or $500 plus 0% to 2.9% financing up to 72 months. End date: 5/05/14
  • May: $2,000 rebate or $1,000 plus 0% to 2.9% financing up to 72 months. End date: 6/02/14
  • June: $750 to $1,500 rebate or 0% to 2.9% financing up to 72 months. End date: 7/07/14
  • July:  $750 to $1,500 rebate or 0% to 2.9% financing up to 72 months. End date: 8/04/14
  • August: $1,500 rebate or 0% to 2.9% financing up to 72 months. End date: 9/02/14


This is what Toyota’s been doing to shore up sales of an important vehicle. The Prius brand, including the C and V models, accounted for 42% of all hybrids sold in the first 7 months, but it’s not having a good year. Prius sales were down 11.0% in the first 7 months, while Toyota’s overall sales were up 5.4%, exceeding the auto market’s 5.0% gain.

2014 Subaru Forester (the brand’s best-selling vehicle)

  • January: 0% to 2.9% financing up to 72 months. End date: 2/03/14
  • February: 0% to 2.9% financing up to 72 months. End date: 3/03/14
  • March: 0% to 2.9% financing up to 72 months. End date: 3/31/14
  • April: 0% to 2.9% financing up to 72 months. End date: 4/30/14
  • May: 0% to 2.9% financing up to 72 months. End date: 6/03/14
  • June: 0% to 2.9% financing up to 72 months. End date: 6/30/14
  • July: 0% to 2.9% financing up to 72 months. End date: 7/31/14
  • August: 0% to 2.9% financing up to 72 months. End date: 9/2/14

 

Subaru has been on a roll for several years. Its overall sales increased 17.9% in this year’s first seven months, spurred by the whopping 46.8% gain registered by the redesigned 2014 Forester.
 
Most consumers’ “hot button” is low monthly payments, not saving $500 or $1,000 on the purchase price. So subsidized cut-rate financing has become today’s most-used incentive type. I haven’t seen any Subaru cash incentive offers in the last couple of years, yet its sales gains have outpaced those of every other brand.  

I’m not saying that incentives don’t change somewhat periodically (e.g., the Prius offers above). Car companies also adjust their incentive levels from market to market. If sales were surging in Chicago but tanking in St. Louis, they’d spend more money per vehicle for Cardinal fans than for Cubbies supporters. 

But after 20 years watching this game unfold, I can say that it’s rare for incentives on any vehicle to disappear from one month to the next. And if there’s an incentive on a car early in the model year, there will almost always be an incentive on it, month after month, throughout the balance of that year.

In net, if you’re not totally prepared to pull the trigger on that new car, don’t be pressured by a phony incentive end date. There’ll be a new one announced a few days later.  

A timely warning about end-of-model-year dealer incentives

While I'm at it, I want to warn you not to buy into this one either: “We’ve got to move out the 2014 models to make room for the 2015s.” That’s more boomfog. The tomato crop is all harvested and canned in the summer. But new cars aren’t tomatoes. Dealers like to maintain about a 60-day inventory. So they’re always “moving out” sold cars to make room for more inventory, week after week, 52 weeks a year. It ain’t no different when the next year’s models arrive!



About the author: James Bragg has been a full-time consumer advocate/activist for over 20 years as the day-to-day, hands-on founder-manager of Fighting Chance.com, a national information service that’s helped over 125,000 consumers buy or lease a new vehicle. His latest book is a revised edition of Letting the Cat out of the Bag: How the Auto Industry "Redesigned" the Dealer Invoice Price When the Internet Arrived.

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